Vehicle & Equipment Finance Tax Guide for Australian Businesses

A tax deduction generally reduces taxable income. A GST input tax credit is a credit for eligible GST included in business purchases. They are separate concepts and can apply at different times under different rules.

For a financed vehicle or piece of equipment, do not treat the repayment itself as automatically deductible. The outcome depends on the finance structure and the tax treatment of the asset, interest or lease expense.

With a typical chattel mortgage, the business acquires the asset and the lender takes security over it. Subject to eligibility and business use, the tax treatment can involve depreciation or other capital-allowance deductions for the asset, deductions for the business-related interest component and GST input tax credits where the GST rules are satisfied.

The precise GST credit can be limited for some passenger vehicles by the GST car limit. This is one reason the vehicle's tax classification matters.

The ATO publishes a car limit for depreciation purposes and a GST car limit for input tax credits. These amounts can change by income year. A vehicle that meets the tax definition of a 'car' may be subject to these limits even when its purchase price is higher.

Some commercial vehicles are outside the relevant definition of a car. Do not use a rule of thumb based solely on whether a vehicle is called a ute, SUV or commercial vehicle. Check the vehicle specifications and current ATO tests.

Private use generally reduces the deductible or creditable business portion. For cars, the ATO provides methods for calculating deductible car expenses, including the logbook method where applicable. A logbook is generally kept for a continuous representative period and can remain valid for later years if the relevant conditions continue to be met.

Keep purchase documents, finance contracts, interest information, odometer/logbook records where relevant, invoices and evidence supporting the business purpose of the asset.

The instant asset write-off has changed repeatedly in recent years. Eligibility depends on the income year, aggregated turnover, asset cost and when the asset is first used or installed ready for use. Financing an asset does not necessarily prevent it qualifying, but the tax rules for that year must be satisfied.

Because the threshold is time-sensitive, this page should never hard-code an old threshold without an income-year label and primary ATO citation.

Lease arrangements should be described according to their actual legal and tax treatment, not simply their marketing name. Depending on the structure, payments may be treated differently from a chattel mortgage and GST credits may arise on periodic payments rather than the original purchase.

Because lease accounting and tax characterisation can be technical, businesses should confirm treatment with their accountant before choosing a structure primarily for tax reasons.

When a depreciating asset is sold or otherwise disposed of, a balancing adjustment may arise by comparing its termination value with its adjustable value under the tax rules. GST can also apply to a taxable sale by a GST-registered business.

A finance payout is a separate calculation from the asset's tax written-down value. The amount owed to the lender, sale proceeds, GST treatment and tax balancing adjustment should therefore be considered separately.

Common problems include assuming the entire loan repayment is deductible, using an outdated instant-asset-write-off threshold, claiming private use as business use, overlooking the car/GST car limits, failing to keep adequate records and assuming every ute or commercial-looking vehicle is automatically exempt from passenger-car rules.

Tax rules change. Put the income year next to every threshold and review the guide at least annually.